Regional Growth Fund

– in Westminster Hall at 11:00 am on 1st November 2011.

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Photo of James Gray James Gray Conservative, North Wiltshire 11:00 am, 1st November 2011

We now come to a debate on UK relations with Libya. I beg your pardon; we do not. That was an extremely good debate on the UK’s relations with Libya, which I enjoyed very much. We now come to a debate on the effectiveness of the regional growth fund.

Photo of Angela Smith Angela Smith Shadow Deputy Leader of the House of Commons

I am mightily relieved that the topic is not Libya, Mr Gray, because my notes do not refer to it in the least. I am pleased to have secured this debate on the regional growth fund. I want to start by putting the fund in the context of the economy as a whole. There is no doubt that the British economy is in trouble. We have a growth crisis. Year-on-year growth has all but vanished, with this morning’s Office for National Statistics growth forecast for quarter 3 at 0.5%, and with construction already in negative territory. Unemployment is at levels not seen since Margaret Thatcher was Prime Minister, and is rising at an alarming rate. Worse still, the young are paying the heaviest price, with youth unemployment at almost 1 million.

Worryingly, unemployment is rising at a much faster rate in the regions than in London or the south-east, as Government cuts bite more heavily into the regions. Already, the unemployment rate in Yorkshire and the Humber is almost twice that in the south-east, according to ONS figures. Inflation is running at more than twice the Bank of England’s target rate of 2.5%, while average incomes are rising at half that rate. That means, as the Governor of the Bank of England said recently, that families are experiencing the biggest squeeze on their incomes in living memory.

The Minister, in his response to the debate, will undoubtedly claim that our growth problem is due to the eurozone crisis. No. The blame must lie at the doors of No. 11 and No. 10 Downing street. Our economic growth has faltered thanks to a reckless slashing of investment by this out-of-touch Government. Yes, in 2008 the global economy did go through the worst financial crisis, and subsequently the deepest recession, since the 1930s, and yes, the British economy was badly affected by the irresponsibility of banks over-lending, but since the Government came to power, the UK economy has stagnated, as I have pointed out. Since last autumn, only earthquake-hit Japan has grown more slowly than the UK in the G7. There is no doubt that the Government’s policies are hurting, but they are certainly not working. Today, I want to spell out that it is not just that the Government are not doing enough to help our economy grow; what they are doing, they are doing badly.

The previous Government’s key tools for regional economic development were the nine regional development agencies covering the country. Those tools for investment enjoyed significant Government support both politically and financially, with a budget of approximately £2 billion a year. I think that in the last year of the Labour Government, the budget was £1.7 billion. The Conservatives made no secret of their desire to abolish the RDAs if they won the general election—they did not win it, but they are in power thanks to the Liberal Democrats—but they were very light on what they thought should replace them.

Photo of Marcus Jones Marcus Jones Conservative, Nuneaton

The hon. Lady seems to be extolling the virtues of regional development agencies. Would she not acknowledge that in the west midlands private sector employment actually fell under the RDAs?

Photo of Angela Smith Angela Smith Shadow Deputy Leader of the House of Commons

This debate is not about the RDAs. The point that I will make, as the hon. Gentleman will see, relates to the level of investment made by RDAs, as compared to the regional growth fund. We now know what the Government’s alternative is—the regional growth fund. On the evidence to date, the fund represents chaos and confusion, with too little being awarded too late to make any significant contribution to promoting economic growth.

There are three aspects to the Government’s approach to regional investment. The first is local enterprise partnerships, which are unfunded apart from a small start-up fund, and have no clout. The second is enterprise zones, which are a tired blast from the past with a mixed track record when it comes to delivering jobs and growth. The third prong of the Government’s regional growth strategy is, of course, the regional growth fund, and yesterday the outcome of the second round of bids was announced.

Photo of Neil Carmichael Neil Carmichael Conservative, Stroud

There are many other prongs, but the fourth prong that I would have mentioned is the enhanced role of local authorities—their powers of competence, and their capacity to deliver planning decisions that will build businesses.

Photo of Angela Smith Angela Smith Shadow Deputy Leader of the House of Commons

I thank the hon. Gentleman for his intervention, but it has already been established this morning that the Humber is actually going backwards because of the cuts to local authorities, so I do not think that that is quite true.

We were told yesterday, in a written parliamentary statement, that 119 bids had been awarded funding. That is just a quarter of the bids submitted. Clearly, there were far more losers than winners, with more than 370 bids rejected. Bids totalling more than £6 billion have been submitted in rounds 1 and 2 of the RGF. That says something about the scale of the unmet investment needs of business, and how little the Government are delivering to meet that need.

The RGF was announced on 29 June 2010, alongside the proposals for the LEPs. A Department for Business, Innovation and Skills press release described the RGF’s purpose as being

“to help areas and communities at risk of being particularly affected by public spending cuts”.

However, current guidance from the Department goes into a little more detail:

“The objective is to stimulate private sector investment by providing support for projects that offer significant potential for long term economic growth and the creation of additional sustainable private sector jobs.”

When announced, the original fund was £1 billion, but the 2010 spending review extended the total value to £1.4 billion over three years—from 2011 to 2014. To put those figures in perspective, as I mentioned earlier, the annual budget for the RDAs averaged £1.7 billion in their last few years of operation. The Government’s total spending on the RGF over a three-year period will be just £1.4 billion. One does not have to be Einstein to see that the RGF represents a two-thirds cut in regional investment, which is an indication of where the Government’s priorities lie and that they are certainly not supporting the regions. The Government use a lot of warm words, but deliver very little when it comes to economic investment. There is a really good northern phrase to describe a person who appears to have everything, but who in fact has nothing much to offer: “all fur coat and no knickers”. I have to say that that seems a rather good description of the Government’s approach to regional growth.

It will take more than warm words to persuade businesses up and down the country that the Government have what it takes to kick-start growth in the economy, which has flatlined since last autumn. It is obvious that there is much demand out there for regional investment; rounds 1 and 2 of the fund were over-subscribed many times over. In the first round of bidding, 478 bids were received, with a value of £2.78 billion. Only 50 bids were successful, and only five have received any money so far—hardly the success to which the Government lay claim. Given that so few bids from the first round have progressed to the point where they have fund money in the bank, how on earth can we expect the Government to deal effectively with the 119 announced yesterday?

On top of that, it is absolutely clear that the Government’s approach to regional investment is far too centralised. In an era of so-called localism, how can the Deputy Prime Minister, Lord Heseltine or the Secretary of State for Business, Innovation and Skills justify a bidding process that is governed and determined by Whitehall, particularly given that the investment framework that it replaced was regionally based and closely attuned to the strategic needs of the regions?

Photo of Laura Sandys Laura Sandys Conservative, South Thanet

I am very lucky, because east Kent received regional growth fund money yesterday. The structure of each of the funds is very different, depending on the local circumstances. Our regional growth fund is transferring to small businesses, and will be transferred to an organisation that will be totally locally focused, and accountable to the local businesses and the employment that we need to create. It is a tailored scheme that reflects the needs of each individual region and its specific employment profile.

Photo of Angela Smith Angela Smith Shadow Deputy Leader of the House of Commons

The fact that the decisions are made by Whitehall is not altered by anything that the hon. Lady has said. One member of the panel that assesses bids for the growth fund, Mr Moulton, is himself benefiting from the fund to the tune of £5.9 million, which is paid to a company called Redx Pharma, in which he is an investor with a stake of about 26%. Would the hon. Lady like to say anything about the fact that there is not much clarity or transparency in that process? That was not the case with the previous arrangements for distributing regeneration money.

Photo of Laura Sandys Laura Sandys Conservative, South Thanet

Our fund in east Kent will be extremely transparent to the business community; it will be accountable to business by delivering jobs on the ground. It will not be something distant, based in Whitehall. In the south-east, the operation used to be based in Guildford; there was not very much on the ground in Margate and Ramsgate.

Photo of Angela Smith Angela Smith Shadow Deputy Leader of the House of Commons

A Government who trusted the voice of the northern regions, and their intimate knowledge of their manufacturing base, would never have cancelled the Forgemasters loan. [Interruption.] If the hon. Lady thinks that is funny, people in Sheffield and south Yorkshire do not. Yesterday we heard an acknowledgement that the Government got it wrong on Forgemasters, and they have awarded a consolation prize, but nothing takes away from the fact that the original purpose of the loan has passed, and an important strategic opportunity has passed us by, thanks to the spiteful attitude of a condemned Government hellbent on cancelling what they saw as a Labour loan.

Photo of David Blunkett David Blunkett Labour, Sheffield, Brightside and Hillsborough

I congratulate my hon. Friend on this timely debate, and on her work on Forgemasters last year. Is it not a serious issue that although a previous Government—including the Department for Business, Innovation and Skills and the Treasury—did up to two and a half years of due diligence on the proposed loan to Forgemasters, in the past two and a half months, no such due diligence has been done? Despite the warm welcome for the money announced yesterday for Forgemasters, the board has not even approved the detail of how the investment is to be made. Last year, the Deputy Prime Minister wrongly described the original decision as political, but we now have a most vivid example of such a decision, with the Deputy Prime Minister arriving at Forgemasters, seeking to make a political gesture out of public money.

Photo of Angela Smith Angela Smith Shadow Deputy Leader of the House of Commons

I completely agree with my right hon. Friend. The Deputy Prime Minister would have been better served yesterday had he acknowledged to the people of Sheffield that he got it wrong and they got it right. If he had shown some humility and apologised for the grave errors that his Government made more than a year ago, perhaps the political point that he was making would have carried a lot further.

One of the issues at the heart of the chaos and confusion surrounding the regional growth fund is the bureaucracy at the heart of the process. For instance, the rules for the fund state that payments will only be forthcoming on successful delivery of outputs. That means that private companies are being asked to invest up front, with the risk that, if they do not make the said outputs in two or three years, they will not receive the moneys promised. That means that the promise to Forgemasters is exactly that: only a promise. That, I am told, is not only putting off many smaller companies from applying, but is making the writing-up of contracts difficult for the successful companies due to the risks involved. In that context, the comments made to me yesterday by the Institute of Chartered Accountants are damning. The institute has been working with BIS officials to make the process simpler and more cost-effective, but it says:

“However, following discussions with our members, BIS officials and firms, we fear that a convoluted approach to the due diligence process for the RGF is resulting in delay, additional bureaucracy and cost for businesses and the government, and undermining the growth goals that the RGF money intends to achieve.”

Those are not my words, but those of the Institute of Chartered Accountants—a damning indictment of the Government’s approach to regional investment.

To make matters worse, the minimum bid for an application to the fund is £l million, with typical leverages of eight to nine being demanded. That means that the fund is out of reach to the average small or medium-sized enterprise—the sectors that the Government say they want to help the most. The Federation of Small Businesses said to me yesterday:

“From our point of view, the minimum amount for bids of £l million has always been far too large for the majority of small businesses. We did encourage collective bids to be made on behalf of SMEs, however this is not ideal.”

Photo of Derek Twigg Derek Twigg Labour, Halton

I praise my hon. Friend for her fantastic campaign on Sheffield Forgemasters, which has resulted in at least a partial climbdown. I gather from what she is saying that we now have a system in place that not only has a lot less money, but is more bureaucratic and more difficult for firms to access. She is right that that is causing a lot of consternation in the business world and among private firms, not least in the manufacturing industry.

Photo of Angela Smith Angela Smith Shadow Deputy Leader of the House of Commons

My hon. Friend is right. The growth figures today show that we are heading for a gross domestic product growth increase of 0.5% over the past year, which is a significant slow-down from the 2.6% registered in the last year of the Labour Government. It is appalling that the Government do not seem able to resolve issues to do with releasing investment to manufacturing and businesses up and down the country, and do not seem able to ensure that the funding flows quickly to the companies that need it in order to secure our economic future.

Photo of Jason McCartney Jason McCartney Conservative, Colne Valley

I thank the hon. Lady—my neighbour in West Yorkshire—for giving way, but I found your partisan language, your doom-mongering and your negativity quite shocking, which is a shame.

Photo of James Gray James Gray Conservative, North Wiltshire

Order. I will have no part of doom-mongering and such language.

Photo of Jason McCartney Jason McCartney Conservative, Colne Valley

One minute, Angela Smith is happy that Forgemasters is getting a loan, and the next she is unhappy—she seems unhappy with both. May I confirm whether she welcomes the regional growth fund as a scheme, but for the tinkering with the details and the learning as we go on with different bids? Does she join Government Members in welcoming the scheme and the way in which it invests in businesses, as it did in David Brown’s in my constituency?

Photo of James Gray James Gray Conservative, North Wiltshire

Order. The hon. Gentleman must be brief.

Photo of Jason McCartney Jason McCartney Conservative, Colne Valley

That was a £2 million investment, which will secure 80 new jobs.

Photo of Angela Smith Angela Smith Shadow Deputy Leader of the House of Commons

I would welcome recognition by the Government that we need far more than what is on offer on the table. We need proper decentralisation of the decision-making processes, more transparency, and a more efficient way of delivering funds to companies.

The chances of such funds delivering significant economic growth are about as good as the chances of Huddersfield football club getting a promotion to the championship next year.

Photo of Tom Blenkinsop Tom Blenkinsop Opposition Whip (Commons)

My hon. Friend is making a valid case. Opposition Members do welcome the regional growth fund, but I will welcome it even more when it actually arrives, as so far only eight businesses have received any funds. Our concerns are reiterated by the EEF, the manufacturers’ association, which is cited in The Northern Echo today. It wants to ensure that

“the funding promised flows through directly to the projects concerned as a matter of urgency.”

Is the current speed at which cash is going to businesses urgent or slow?

Photo of Angela Smith Angela Smith Shadow Deputy Leader of the House of Commons

My hon. Friend is right. It is not only slow; there is inertia at the heart of the Government’s approach to investment in our economy. That is all down to the Chancellor of the Exchequer, who said this morning, when asked by the BBC, that this is a difficult journey for the UK economy, but that we are determined to complete it, so that we have jobs and growth—only warm words, once again. He will not admit that he has got it wrong, or that he needs a plan B, and that is at the heart of the problem we are facing.

Photo of Fiona Bruce Fiona Bruce Conservative, Congleton

The hon. Lady said that small and medium-sized enterprises will not benefit. Does she not agree that the supply chain benefits are enormous? Let me cite the successful bid of Pochin’s of Middlewich in my constituency for £4.1 million, announced yesterday. That will result in the creation of 3,600 new jobs, ultimately, and safeguard a further 200 in the region. Many of those jobs will be in SMEs.

Photo of Angela Smith Angela Smith Shadow Deputy Leader of the House of Commons

I am sure that hon. Members have come here today to congratulate the companies that were promised money in yesterday’s announcement. Any investment is welcome, but I remind the hon. Lady that the Government cancelled a significant investment in the nuclear industry supply chain 18 months ago. That is what the Forgemasters loan was about, and that is why the Government are seriously damaging the economy. We are talking about a major supply chain that would have ensured that the UK and its manufacturing base were at the forefront of the building of the next generation of nuclear power stations.

How businesses access the fund is a problem, as the Minister admitted in an article in The Times:

“There have also been problems where, given the financial uncertainty from June onwards, it has proven very slow to unlock that private capital.”

So where are we with the Government’s regional growth strategy? It is quite obvious that the Government’s thinking is muddled to say the least. They have dismantled the Labour Government’s regeneration framework and replaced it with a rickety framework, fed with inadequate resources spread very thinly. Worse still, this comes at a time when help is most required by many of the regions because of the Government’s desire to cut too far and too fast.

So what should we be doing to jump-start growth? Labour’s plan to repeat the bank bonus tax, and to use the funds to build 25,000 desperately needed homes and secure jobs for 100,000 young people, would help, as would bringing forward long-term infrastructure projects. We got a start on this yesterday, but we need more. For the medium term, I agree with the Leader of the Opposition when he says that we need to change the very nature of our economy. We need to go back to making things, to give manufacturing a much bigger role in our economy, and we need an economy that looks at the long-term, and not just to short-term profits.

Photo of Marcus Jones Marcus Jones Conservative, Nuneaton

I thank the hon. Lady for giving way; she is being generous in taking interventions. She tells us how important manufacturing is to rebalance our economy, yet in 13 years of Labour Government, on her party’s watch, we lost 1.7 million manufacturing jobs.

Photo of Angela Smith Angela Smith Shadow Deputy Leader of the House of Commons

I think the hon. Gentleman overlooks the fact that the Labour Government were prepared to show what is called industrial activism. They worked hard for a long period to ensure that due diligence was in place, and that we invested in key sectors of our manufacturing economy. The hon. Gentleman’s comment is a bit rich, given that the production industries have gone into negative growth in the last quarter. Mining and quarrying took the productive part of the economy into negative growth in the last quarter, so I do not think that we need any comments from Government Members on manufacturing and support for manufacturing.

Photo of Phil Wilson Phil Wilson Opposition Assistant Whip (Commons)

I do not know whether my hon. Friend is aware of this, but the regional growth fund for north-east England will create some 8,500 jobs over three years. That is equivalent to the number of jobs lost in the north-east in the past three months.

Photo of Angela Smith Angela Smith Shadow Deputy Leader of the House of Commons

That is precisely the point. That underlines the fact that the Government are cutting too far and too fast. Their policies risk producing a double-dip recession.

Photo of Tom Blenkinsop Tom Blenkinsop Opposition Whip (Commons)

Another interesting statistic came out today: the purchasing managers index for manufacturing output slumped to 47.4%, below the 50% figure, which is an early indicator of a downturn in manufacturing. That is a scary statistic for us all to take on board.

Photo of Angela Smith Angela Smith Shadow Deputy Leader of the House of Commons

I completely agree with my hon. Friend. I repeat that we need an economy that looks at the long term, and not just short-term profits. We need to invest in innovation. We need a co-ordinated, well-funded regional growth strategy, not the disparate, unco-ordinated approach that represents too little, too late, from a Government who have fallen asleep at the wheel and lost their way as far as economic growth is concerned.

Photo of David Tredinnick David Tredinnick Conservative, Bosworth 11:25 am, 1st November 2011

I congratulate Angela Smith on securing the debate. I have listened to her complaints about Government strategy, but I will not dwell on those, because I am sure that the Minister, who was making notes, will have a few things to say about that.

I want to address the issue of the regional growth fund and explain why it has been fundamentally important to my Leicestershire constituency, which sits on the boundary of the east and the west midlands. The Government’s decision yesterday to grant regional growth fund second round support to the MIRA technology park will make a huge difference not just in my constituency—my hon. Friend Mr Jones nods his head—but right across the midlands, because it will impact on some of the areas with the greatest problems.

The new MIRA technology park, which desperately needed regional growth fund status, was approved by Her Majesty’s Government in August. This new technology park will attract up to £300 million—perhaps more—in private investment. It is also likely to create and be responsible for up to 5,000 sustainable jobs. We can argue about the numbers—it depends on the catchment area—but it is a massive boost to industry in the heart of England. I represent the heart of England where the Fosse way crosses Watling street. We expect 200 jobs to be in place by 2013, largely based in a 43,000 square metre state-of-the art engineering centre, and a 155,000 square metre research and development facility, which will incorporate a new technology park.

Photo of Richard Burden Richard Burden Labour, Birmingham, Northfield

I agree with the hon. Gentleman about the importance of MIRA. I congratulate it on being successful, with the promise of RGF money, as indeed Jaguar Land Rover was a little while ago. However, does he agree with my hon. Friend Angela Smith, who said in opening the debate that the promise of money is not much use unless it is actually delivered in practice? The Government need to think about how they can deliver RGF money rather than just make promises.

Photo of David Tredinnick David Tredinnick Conservative, Bosworth

I understand that the hon. Gentleman speaks on behalf of his motor manufacturing constituency. Obviously, there is demand for more regional growth fund support. Where we are now with the RGF is very helpful, and it is successful for reasons that I will develop.

Photo of Marcus Jones Marcus Jones Conservative, Nuneaton

I am proud to have worked with my hon. Friend David Tredinnick in promoting the MIRA enterprise zone and RGF bids. Does he agree that it shows the importance of cross-boundary working, with his constituency in the east midlands and my constituency just over the width of the A5 in the west midlands? The fact that the local enterprise partnership for Coventry and Warwickshire has strongly backed the MIRA development shows how the new system is starting to work and bear fruit.

Photo of David Tredinnick David Tredinnick Conservative, Bosworth

I absolutely agree with my hon. Friend, who has worked tirelessly for this project. I sat with him in his council chamber—in his former chair, I think—in Nuneaton not long ago and considered these issues. We can talk about the boundaries—parish, borough, county and regional—in the areas that we represent, but the point is that the footprint of the MIRA park is enormous. It covers a very large area of the east and the west midlands—areas that desperately need help.

I will return to the subject of the debate, Mr Gray, before you call me to order. I would not want to fall foul of the Chair. There were many concerns earlier this year when MIRA did not succeed in round one of the RGF because the technology park really could not succeed without that support. We are talking about not an add-on, or bells and whistles on a machine, but part of the gearbox without which the project could not go ahead. There has been huge investment on this former bomber aerodrome site.

Photo of Marcus Jones Marcus Jones Conservative, Nuneaton

I assure my hon. Friend that I will not take much more of his valuable time, but does he agree that in addition to the growth and jobs that the MIRA development will create, RGF funding will also change the physical complexion of the A5? It will therefore benefit not only the MIRA development, but the east and the west midlands, which rely heavily on the A5 corridor.

Photo of David Tredinnick David Tredinnick Conservative, Bosworth

My hon. Friend is right. I do not want to detain the House for long as many colleagues wish to speak, but I shall refer him to correspondence that I have received from worried constituents and former councillors on transport issues such as not improving the roads, traffic flows that, when measured seem to be too great for the existing roads, and problems on the A444/A5 Red Gate junction, which he will know well. There are also other local issues such as Higham lane roundabout—all concerns about the national highway. With the second round of applications to the regional growth fund, we will solve those problems and all those roundabouts and junctions will be improved. Indeed, the roads must be improved because otherwise heavy vehicles cannot get in safely. As MIRA said, subsequent to the RGF2 bid submission, those improvements will go ahead.

MIRA technology park will receive £20 million from the regional growth fund. I spoke to MIRA’s chief executive yesterday and looked at other aspects of the scheme, and I understand from the Minister’s Department that one or two issues concerning the impact on traffic and traffic changes need to be resolved. I thought that the Department had already dealt with such matters, but I have received reassurances that such problems will not obstruct the bid. I hope that the Minister will address that concern in his response.

The huge knock-on effect of the bid will not be confined to businesses but will have a massive impact on education and apprenticeships. Another leap forward that the Government have made is to improve, invigorate and release more people into the apprenticeship structure. Astonishingly, the Labour Government never really cracked that issue over 13 years. They were always out of kilter; there were never enough plumbers or enough this or that. It was a command economy approach that did not work. We are now freeing up the economy and giving people more responsibility. [ Interruption. ] I love heckling, Mr Gray, and if we had the time, I could not get enough of it. Seriously, however, we are talking about important issues.

Last night representatives from further education colleges visited the House, including Marion Plant from North Warwickshire and Hinckley college. We talked about the importance of developments such as the new Hinckley campus and the studio school that will come on stream in September 2012 with design apprenticeship training, and courses in advanced engineering and health and social care. She told me that there had been 500 applications for nine places. The demand exists, and we are heading in the right direction.

Last Friday I was contacted by Radio Leicester which asked me to do an interview about the increase in the number of apprenticeships in my constituency. I have received one or two other requests in the past, and I accepted that one immediately. There has been a phenomenal increase in apprenticeships in my constituency, which embraces Hinckley and lies adjacent to Nuneaton.

In summary, for all the complaints made by the hon. Member for Penistone and Stocksbridge—and I am sure there will be many other complaints from Opposition Members—something is stirring in the heart of England. Under this Government, there are more apprenticeships, and we are allowing institutions such as North Warwickshire and Hinckley college more say about how they run their affairs. There is less top-down government. I have just come from the Health Committee. We will not go into that issue now, but the Government are trying to give more power to doctors, which I welcome. The Government are succeeding in what they are doing, and the regional growth fund is an important part of that. I congratulate the Minister and his colleagues.

Photo of Phil Wilson Phil Wilson Opposition Assistant Whip (Commons) 11:35 am, 1st November 2011

It is a pleasure to serve under your chairmanship today, Mr Gray, and I congratulate my hon. Friend Angela Smith on securing this debate.

I will be brief because other Members wish to speak and we obviously want to hear contributions from the Front-Bench spokesmen. First, I would like to congratulate those firms in my constituency that have received money from the regional growth fund—Kromek Ltd, Permoid Industries Ltd, Carlton & Co., Hydram Engineering Ltd and ThyssenKrupp Tallent Ltd. Those highly-skilled organisations will produce jobs in the future. As I pointed out, however, although the regional growth fund will create around 8,500 jobs in the north-east of England, that is about the same as the number of jobs that have been lost in the north-east over the past three months.

Photo of James Wharton James Wharton Conservative, Stockton South

The hon. Gentleman is right to mention estimates that suggest that the current round of regional growth fund funding for the north-east will create 8,500 direct jobs. In addition, however, there will be 17,000 indirect jobs. The previous round of funding, in which our region did exceptionally well, is estimated to have created a further 5,200 direct jobs, and 8,400 indirect jobs. The figures are higher than one might believe if we listened only to the comments made by Opposition Members.

Photo of Phil Wilson Phil Wilson Opposition Assistant Whip (Commons)

Those jobs will come on stream over the next few years. North-east England now has the highest unemployment in the country, and we are grateful for everything that we receive from the regional growth fund. We should not forget, however, that the fund for regional development is only one third of what it was under the previous Government. The problem with the regional growth fund is that it does not provide a strategy for the regions. A company applies for a grant, and if they get it that is fine, but if they do not, they do not. The fund is led not from the regions but from Whitehall; it should be renamed the Whitehall growth fund.

I have one or two questions for the Minister to which I hope he will reply. They concern the delay experienced by companies in receiving the money for which they applied in the first round—hopefully, they will not have the same problems this time round. The issue seems to concern the need for due diligence. Under the previous Administration, except in complex cases, the regional development agencies would be responsible for due diligence and absorb the cost. I have asked the Library to look into the matter, but as I understand it, under the present regime, due diligence has to be secured and paid for by the applicant out of the grant. Is that a reason for the delay in companies receiving their funding? Why are we asking applicants to find someone to look into issues of due diligence, and why does money for that come out of the grant? Under the old system, that was not the case.

In conclusion, one of my concerns as a north-east MP is that although the Scottish Development Agency exists north of the border, there is no similar body in the north-east. People say that regional development agencies are a waste of money and so on, but I would defend One North East, which has been very good. If something ain’t broke, don’t fix it—it was a major mistake of the Government to abolish that RDA in the north-east, especially when one exists north of the border. In the south of England, the number of companies in distress or facing bankruptcy are in decline, while in the north-east, they have increased by 20%. There are concerns in the north about the strategy. The second round of applications to the regional growth fund has finished. What will happen between now and the next election as far as regional development and regional grants are concerned? It seems that there is no strategy on that. I am especially concerned about the issue of due diligence because that may explain why delays are occurring, and I hope that the Minister will respond on that issue.

Photo of Esther McVey Esther McVey Conservative, Wirral West 11:39 am, 1st November 2011

I congratulate Angela Smith on bringing this timely debate to Westminster Hall. However, having listened to what has gone on, I think that we need to put the debate in context, so here goes. We have to look at the time when the coalition Government took office. We had the biggest deficit ever in peacetime history. We were paying £120 million in interest per day. Labour did too little, too late, and left us with a busted flush. The UK economy has grown by 0.5% in the third quarter of 2011, according to the Office for National Statistics.

Photo of Tom Blenkinsop Tom Blenkinsop Opposition Whip (Commons)

If, as the hon. Lady says, the economy was in such a bad situation when the coalition Government came to power, why did the Chancellor of the Exchequer predicate the deficit reduction plan on 3% growth? To date in 2011, we have growth of less than 1%, which has led to extra borrowing of £46 billion plus.

Photo of Esther McVey Esther McVey Conservative, Wirral West

No, the hon. Gentleman will find that his party left the economy in so bad a situation that we not only had to say, “You will live within your means and spend what you have,” but we had to provide a growth structure so that we could rebalance the economy.

Photo of Esther McVey Esther McVey Conservative, Wirral West

Not yet. Let me proceed to put the debate in context. Hon. Members talked about the regional development agencies. I will talk favourably about the Northwest Development Agency because the staff there are superb. I have worked with many of them and have a lot of time for them. However, let me give the statistics. From 1990 to 1999, annual growth was 1.7% in the north-west and 2.3% in the south-east—a gap of 0.6%. Between 2000 and 2008, average growth was 1.5% in the north-west and 2.1% in the south-east. We kept that gap of 0.6%, despite spending £3.7 billion over a decade.

Photo of Esther McVey Esther McVey Conservative, Wirral West

No, I will not. Therefore, we now have to ask how we will spend money better, how we will live within our means and how we will rebalance the economy. I talk as someone who had her own business for the last 14 years. I have set businesses up and sold them. I also set up the biggest business network for women in the north-west, involving more than 9,000 business ladies. I therefore like to see myself not only as a business woman, but as a pragmatist who knows that we can spend only what we have. That is what the coalition Government were facing.

I hope that I have set the debate in context. The regional growth fund was set up to create a fairer and more balanced economy, in which we are not so dependent on a narrow range of economic sectors and in which new business and economic opportunities are evenly shared across the regions and across industries. That is what we set out to achieve.

Photo of Angela Smith Angela Smith Shadow Deputy Leader of the House of Commons

The regional development agency Yorkshire Forward played an instrumental role in developing the UK’s first technology and innovation centre. We did not call it that. It is the advanced manufacturing research centre in Sheffield. That is now being lauded as the perfect example of where this country needs to go on investment in new technologies and design. Will the hon. Lady not at least acknowledge that the RDAs had a very good and effective role in pulling together strategic investments and strategic design and innovation?

Photo of Esther McVey Esther McVey Conservative, Wirral West

I thank the hon. Lady for that intervention. As I said, I did not deal with Yorkshire Forward; I worked with the Northwest Development Agency and I congratulate the staff, who were excellent. I am saying that, despite spending £3.7 billion, what was meant to be done—rebalancing the economy—never happened. We are therefore asking how we can best deliver the money, how we can focus it and how we can ensure that it achieves its purpose.

Photo of Fiona Bruce Fiona Bruce Conservative, Congleton

I, too, worked with the regional development agency in the north-west. What is particularly striking about the regional growth fund is that applications are succeeding from areas that, under the previous Government, were largely ignored when it came to business support. For years, business people in my constituency of Congleton have commented on the fact that although neighbouring areas—Staffordshire, for example—could obtain support, Cheshire was almost a desert. Now, we are seeing a difference. The Government are saying that there are areas across the country that need business support; and wherever they are, they are receiving it.

Photo of Esther McVey Esther McVey Conservative, Wirral West

I thank my hon. Friend for that intervention.

The purpose of the regional growth fund was to stimulate growth, secure jobs and increase the number of jobs. There was a consultation with the public: what did they think it would be best for the regional growth fund to do? The replies came back that they wanted flexibility and no duplication of funds. It was thought best that at least for stage 1—things will change over the next couple of years—there should be minimum bid thresholds of £1 million. It was also felt that guidance should be published. The first round allocated £2.7 billion, creating and safeguarding jobs. It created 27,000 jobs and a further 100,000 jobs in associated supply chains.

I want to talk specifically about Merseyside. In round 1, Pilkington’s in St Helens, Ames Goldsmith UK, Echo and Stobart were successful. I got in touch with Richard Butcher, Stobart Group deputy chief executive, to ask him about the regional growth fund. He says that the regional growth fund has been

“an important factor in Stobart Group’s commitment to the Halton region and will ensure the continued investment from us that the area needs to maintain economic regeneration and growth. The investment from Stobart, Prologis and Halton Borough Council has transformed the area and created many important new jobs—the support from the Regional Growth Fund will further enhance that regeneration.”

Stobart Group has already invested £100 million to date in the development of its Mersey multi-modal gateway logistics site in Widnes, but this new private-public partnership saw the regional growth fund as an ideal opportunity to push on with the development of a further 100 acres, eventually creating more than 5,000 additional jobs and £170 million in gross value added. With the £9 million received in round 1, it is moving forward on opening up 1 million square feet of warehousing space served by rail and road.

That is a perfect example of how the RGF can bring public and private bodies together to stimulate investment and boost the economy. Stobart illustrates the private partnership success and collaboration that has emerged from the RGF. It successfully forged a business partnership between itself, a road haulage operator, infrastructure developers Prologis and Halton borough council. As we know, the sum is always bigger than its parts. That example proves the case most effectively.

I want to refer to other significant developments. The regional growth fund was set up to make key links between private-private partnerships and private-public partnerships, and we are seeing that, but this is the start of a brand-new way of thinking. It is a way of focusing money that we have not seen before, and we will learn as we go along, so instead of the negativity that we have heard today—

Photo of Esther McVey Esther McVey Conservative, Wirral West

No, I will not just yet; I will in a second. When we talk in Westminster Hall about the confidence that business needs—we all know that that cannot really be defined but is necessary—it helps for all parties to give confidence to business.

Photo of Edward Timpson Edward Timpson Conservative, Crewe and Nantwich

My hon. Friend has touched on the importance of business confidence. I am sure that as a fellow north-west MP, she will be pleased to hear that Bentley Motors in my constituency, which has already invested £1 billion in its Crewe plant, has secured money not only in the first round but in the second round of the regional growth fund—a further £3 million to boost its research and development. The company has said that that will not only secure the current jobs, but create more jobs in the local area. For the south Cheshire area and Crewe in particular, that is vital to ensuring that business confidence remains and that businesses can continue to invest in future.

Photo of Esther McVey Esther McVey Conservative, Wirral West

That is indeed vital. When we talk in the House and our words are taken down in Hansard and when people look at it on the internet, people must not just hear doom and gloom, because in reality many positive things are happening and they are coming from private industry.

Photo of Richard Burden Richard Burden Labour, Birmingham, Northfield

The hon. Lady has said that she hopes that the Government will learn as they go along about how to deliver the RGF more effectively. Why does she believe that there have been delays? I am sure that businesses in her area are complaining about that quite a lot. There have been many delays in delivering money already promised. Why does she think that is?

Photo of Esther McVey Esther McVey Conservative, Wirral West

Let me correct that. I do not think that the RGF will be delivered more effectively, but that it will change along the way, as small and medium-sized enterprises link together and put in bids for £1 million. Everybody knows—I was slightly startled by some Members’ comments about this—that due diligence must be done and that money must be targeted at the right people. That is what people in business do—full stop. These things take some time.

Photo of Esther McVey Esther McVey Conservative, Wirral West

I will carry on, because I have nearly finished.

Thirty-four companies and other organisations across the north-west made successful bids in round 2. My hon. Friend Mr Timpson mentioned Bentley, but there is also the university of Liverpool, Pirelli Tyres Ltd, Northwest Aerospace Alliance, Sefton council and Liverpool Vision—the list goes on and on. There are 34 companies and other organisations in total, and they have benefited from some of this £3.3 billion, which is safeguarding jobs, as well as creating 37,000 new jobs, with a further 164,000 jobs in related supply chains and local economies.

Specifically on Merseyside, there is GETRAG FORD Transmissions in Knowsley, which has won support to expand capacity for the production of transmissions at the Halewood plant. Another development I would raise with the Minister is groups of SMEs bidding for £1 million. Last week, I brought a group from the Wirral Invest Network to Westminster to speak to him about how that could best be done. So, yes, the regional growth fund has done a tremendous job so far, against all the odds, but I would like it to be stepped up to help SMEs.

Photo of Simon Danczuk Simon Danczuk Labour, Rochdale 11:51 am, 1st November 2011

The points I wish to make relate very much to the process surrounding how the regional growth fund works. Esther McVey talked about the need to spend money better, but the regional growth fund is spending it badly. All the evidence suggests that improvements can be made, particularly to the process. It cannot be right that only five or six firms out of 45 successful bidders have received money from the first round.

At last week’s Business, Innovation and Skills questions, the Secretary of State said that such an outcome was acceptable and that it was all part of the process, but the truth is that it is not acceptable. The lifeblood of any business is cash flow, and slowness in making awards will jeopardise the economic growth that the fund is trying to achieve. There are therefore real concerns about how the process is working and about its slowness. At the rate we are going, not all the awards will have been made to the businesses concerned by the end of this Parliament.

It cannot be right that the Department has issued nearly 30 press releases about the regional growth fund but has managed to allocate only five or six awards since the fund was set up. It also cannot be right that successful businesses have to hire consultancy firms to carry out the due diligence that is expected, as my hon. Friend Phil Wilson said. Under the previous structure of regional development agencies, that due diligence would already have been done, which would have resulted in a much quicker process.

There need to be questions about transparency. We are unsure how decisions are made about successful and unsuccessful bids. It has been pointed out to me that LEPs, which were the creation of this Government, are not being fully involved in the decision-making process. For example, the LEP covering Sheffield was not aware that Sheffield Forgemasters was to receive the funding that it did. As has been said, there are also reports in today’s newspapers that one of the business men who sits on the fund’s advisory panel owns shares in one of the businesses that will benefit from the second round.

My final point relates to the £1.4 billion being made available over three years, which is just a third of what the previous Government put into regional development.

Photo of Oliver Colvile Oliver Colvile Conservative, Plymouth, Sutton and Devonport

I hear what the hon. Gentleman says, and there are two issues. First, we have had a great deal of discussion about how money should be going into business in the north-east and the north-west, but the south-west is also important. Secondly, the country is incredibly short of money, and we should surely be using this money for catalyst work and to build our skills base.

Photo of Simon Danczuk Simon Danczuk Labour, Rochdale

I would not disagree, but my point is that the regional growth fund is not working effectively, although it might look attractive. We may have a limited amount of money, but it needs to be spent well, wisely and effectively. The measure of the regional growth fund, particularly given the amount being made available, was whether it would create private sector jobs to replace the jobs lost in the public sector. All the indications are that that is not occurring; indeed, we know that for a fact because unemployment—particularly youth unemployment—is going up. As a mechanism and policy, therefore, the regional growth fund is failing.

Photo of Simon Danczuk Simon Danczuk Labour, Rochdale

I am going to conclude.

In conclusion, awards are being made too slowly, there is too much bureaucracy, there is a lack of transparency and the amount available is inadequate.

Photo of Eric Ollerenshaw Eric Ollerenshaw Conservative, Lancaster and Fleetwood 11:55 am, 1st November 2011

It is nice to follow Simon Danczuk. The regional growth fund must have got something right if there is a majority of northern MPs here because the majority of the money has gone to the north, and that, in a sense, is where I want to start. First, however, I congratulate Angela Smith on getting this debate and on the fight she has put up for her area.

I want to talk about the background of the north-south divide, which Opposition Members seem to forget. The division between the north and the south has been recognised by the Government and by Government Members from the north, but it is not clear whether the previous Government recognised it. In December 1999, former Prime Minister Tony Blair said the north-south divide was as myth and

“an over-simplistic explanation of the problems that regional economies face”.

One wonders where the problems did begin. To be fair, he told The Journal in Newcastle four months later that

“the North South divide exists, and I never said it doesn’t.”

Labour then set up regional development agencies in every region. Even at the time, some Labour Members criticised the fact that London had a regional development agency. At this point, I should declare an interest, having been a member of that RDA. I should tell the hon. Member for Stockbridge and Penistone that I never saw a great deal of transparency in the way that agency dealt with things, but perhaps that was because I was its minority Tory member.

I thought the point of RDAs was to deal with the north-south divide. However, my hon. Friend Esther McVey has spoken about the relative decline of the north over the past 13 years. I want to give some figures to illustrate that. The latest figures I have for gross value added in the north—for what the north added to the national wealth—show that between 1995 and 2008, which is before the coalition Government took office, and with 100 being the average, the north-east saw a decline from 82.9 to 78.2, the north-west saw a decline from 90.2 to 86.4 and Yorkshire and the Humber saw a decline from 89 to 82.9.

If we go beneath that to the sub-region and look at my area, we see that Lancashire had a GVA of 88.7 in 1995, but that went down to 78.7 in the figures for 2008. That is a 10 point drop. What was the RDA doing if that was happening?

Photo of Tom Blenkinsop Tom Blenkinsop Opposition Whip (Commons)

What are the actual or nominal figures? What is this 82% of?

Photo of Eric Ollerenshaw Eric Ollerenshaw Conservative, Lancaster and Fleetwood

I am talking about a national average of 100 from 1995 to 2008. The hon. Gentleman’s area declined even further.

Photo of David Mowat David Mowat Conservative, Warrington South

The point my hon. Friend is making extremely powerfully is that, in the last year of the previous Government, the north-south divide reached a peak for the previous three decades. That is extraordinary; it was brought about by the boom in the south-east and London, and it is a fact.

Photo of Eric Ollerenshaw Eric Ollerenshaw Conservative, Lancaster and Fleetwood

Let me move on.

I congratulate the Government on being among those who recognised that something needs to be done. Yes, the regional growth fund is not the biggest thing, and we want more to be done.

Photo of Eric Ollerenshaw Eric Ollerenshaw Conservative, Lancaster and Fleetwood

May I just continue a little further before I give way?

At the moment, however, we are learning as we are doing. I was here in May when some Members complained about the first round of bids. I suggested that it was following the old methods of the RDA in the north-west, and my hon. Friend Fiona Bruce has mentioned that, too. The areas prescribed were Greater Manchester and Merseyside—for obvious reasons, given European rules and all the rest of it; but there was a lack of actual support for good businesses in other areas, such as my own, which had the capacity to expand and take on more people. For example, Northern Tissue Group, with 150 employees—so it was not applying for the biggest grant—was denied a grant in the first round. I am pleased that in the second round it is still in discussions, and it looks as if it may well succeed.

Photo of Angela Smith Angela Smith Shadow Deputy Leader of the House of Commons

My constituency is Penistone and Stocksbridge, with an “s” in it. It is being misquoted all over the place.

Photo of Angela Smith Angela Smith Shadow Deputy Leader of the House of Commons

Is the hon. Gentleman really saying that the Government can do more for less—for two thirds less? Is he really saying that they can deliver more growth and rebalancing of the economy on a fund that is only one third of the original sum on the table?

Photo of Eric Ollerenshaw Eric Ollerenshaw Conservative, Lancaster and Fleetwood

There are a couple of things to say. My hon. Friend the Member for Wirral West has explained the economic circumstances, and I do not need to go through that again. However, as my hon. Friend Mr Jones keeps pointing out, the bureaucratic cost of the regional development agencies was something like £300 million, before any money got to any business through any due diligence process. We got rid of that, and what I regard as the success in round 2 is the fact that the companies in question are way beyond the normal areas, in Burnley, Wigan and as far as Carlisle and Cumbria—and I hope that my own part of Lancaster is part of that. That is a recognition of where success lies, and what we have learned from the mistakes of the regional development agencies.